Amlin Deal Puts M&A Spotlight on 4 Remaining Publicly Traded Lloyd’s Insurers

By | September 9, 2015

Amlin Plc’s $5.3 billion takeover by a Japanese competitor has put the remaining four publicly traded Lloyd’s of London insurers in the spotlight for a possible takeover.

Beazley Plc, Hiscox Ltd., Lancashire Holdings Ltd. and Novae Group Plc all rallied in London trading after MS&AD Insurance Group Holdings Inc. agreed to pay 670 pence a share for Amlin — a 36 percent premium to Monday’s closing price. The deal, which represents 2.4 times net tangible book value, is the highest multiple paid for a Lloyd’s insurer.

“With only a limited number of quoted Lloyd’s insurers left, we believe that all listed companies are likely takeover targets,” said Paris Hadjiantonis, an analyst at Keefe, Bruyette & Woods in a note to clients on Tuesday. The recent wave of insurance mergers will “lead to further consolidation within Lloyd’s.”

Amlin adds to a string of deals in the Lloyd’s and Bermuda insurance markets as an influx of reinsurance capital weakens prices and investment income dwindles from record low interest rates. The UK’s Catlin Group Ltd. and Brit Plc earlier this year both sought safety in combining with an overseas competitor.

The bid comes as reinsurers worldwide fly to Monte Carlo this weekend to begin talks on pricing for 2016. Standard & Poor’s said Tuesday that many firms in the industry will struggle to maintain strong profitability in the next two years, paving the way for further consolidation.

Excluding Amlin, there have been about $81 billion of insurance acquisitions worldwide in 2015, more than double the amount of the year-earlier period. The U.S. and Bermuda have so far accounted for the lion’s share, led by ACE Ltd.’s $28 billion deal to buy Chubb Corp.

Beazley, Hiscox and Lancashire have all previously reiterated their plan to remain independent, while Amlin’s Chief Executive Officer Charles Philipps said just two weeks ago that the firm was not for sale, saying rumors in the insurance market “seemed to be rife.”

Lancashire and Novae are the most plausible takeover candidates because of their smaller market value and exposure to reinsurance, KBW’s Hadjiantonis and Westhouse Securities Ltd.’s Joanna Parsons wrote in notes to investors. Shore Capital’s Eamonn Flanagan also named Lancashire as the “most vulnerable” to a takeover, adding that an acquisition of either Beazley or Hiscox would not be cheap.

Novae rallied 5.4 percent to its highest since 2001, while Lancashire and Beazley closed up 4.9 percent and 3.6 percent respectively on Tuesday. Hiscox jumped 3.3 percent.

A spokeswoman for Beazley declined to comment, while officials for Novae, Hiscox and Lancashire weren’t immediately available to comment.

Outside of Lloyd’s, bidders for Amlin’s peers have been mainly Bermudian firms looking to diversify away from catastrophe reinsurance or insurers in Japan and China seeking wider access to international markets. Buying a Lloyd’s insurer provides a network of insurance licenses globally and “immense” intellectual capital, Flanagan said.

“The quoted Lloyd’s insurance sector is shrinking fast, and question will be who is next?” said Parsons, head of research and insurance at Westhouse in London. “All the companies will start to attract a scarcity valuation as few Lloyd’s insurers are now independently owned. Is it time to wave goodbye to this sector?”

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